Stanford budget plan for 2013-14 reflects strong fiscal positioning – but also need for caution

The plan makes high-priority investments in programs, student financial aid, and faculty and staff compensation, Provost John Etchemendy told the Faculty Senate on Thursday, but takes a largely defensive approach that includes a healthy reserve and surplus.

L.A. Cicero Provost John Etchemendy answers questions about the budget at the Faculty Senate meeting.

Provost John Etchemendy answers questions about the budget at the Faculty Senate meeting.

While its overall financial position remains strong, Stanford is taking a cautious approach to budgeting for the 2013-14 fiscal year largely due to uncertainties in federal research funding, Provost John Etchemendy told the Faculty Senate on Thursday.

Stanford will make limited, targeted investments in programs and will budget for responsible growth in the year ahead, Etchemendy reported in his annual budget talk. But the university also is budgeting for a prudent surplus as a hedge against the potential impacts of sequestration, the budget policy that limits federal discretionary spending in areas including sponsored research.

The $4.8 billion Consolidated Budget for Operations includes increases for faculty and staff compensation, student financial aid, and pressing needs in the academic enterprise, student services and physical plant operations.

"We're in good health financially as a university," Etchemendy said. "Second, the budget this year is characterized by a lot of caution. We're concerned about a number of things on the horizon."

The budget plan for the fiscal year beginning Sept. 1 was distributed to members of the Faculty Senate at the meeting and will be submitted to the Board of Trustees for approval at its June meeting. The provost's slides from the Faculty Senate meeting are available on Stanford's bondholder information website, and the full budget document will be posted there as well following trustee approval.

Among the highlights of the budget is an increase in undergraduate need-based scholarships, preserving Stanford's strong commitment to student financial aid. Funding for need-based scholarships has increased from $75.2 million in 2007-08 to $131.7 million in 2013-14, including an additional $7.3 million in general funds being provided in the 2013-14 budget.

The budget also funds the highest-priority general funds requests for academic programs at Stanford, including increases to support instruction in computer science and creative writing, two areas of substantial enrollment growth, as well as enhanced support for Stanford's libraries.

But some of the larger incremental allocations of general funds in the budget are responses to the uncertainties in federal funding. The budget allocates $2.3 million to increase from 35 percent to 40 percent the portion of graduate research assistants' tuition that Stanford will cover, decreasing the amount faculty members must charge to their research grants.

The budget also allocates $10 million to increase the general funds central reserve from $20 million to $30 million. Schools, departments, programs and individual faculty have additional reserves within their budgets.

"It's a very defensive budget," Etchemendy said. "Nonetheless, we have a strong salary program and have funded the highest school priorities."

Chart showing incremental general fund allocations

(Click image to enlarge)

The budget also takes a cautious approach to staff growth. While acknowledging that the university is a people-driven organization in which workload increases require appropriate staffing, Etchemendy said the 5.7 percent growth in staff headcount seen in 2012 is "unsustainable." The budget aims to hold the annual growth rate of staff to the longer-term historical growth rate of 2 to 3 percent while continuing to provide competitive salaries and benefits for both faculty and staff.

Members of the Faculty Senate noted that staff growth has outpaced faculty growth. Etchemendy said he had been "fairly stingy in adding new staff positions" through the central budget process this year, though individual units have the ability to add positions if they have sufficient funding of their own.

The $1.2 billion General Funds Budget for 2013-14 has a surplus of $25.5 million to help protect against revenue uncertainties. General funds are funds that can be used for any university purpose and support many of the core academic and support functions of the university. The overall Consolidated Budget, which includes both general funds and various other funds restricted to specific purposes, has a surplus of $173 million on revenues of $4.8 billion.

Consolidated Budget for Operations

The Consolidated Budget for Operations includes all of Stanford's anticipated operating revenue and expenses for the coming year, though the budgets for the Stanford Hospital and Clinics and the Lucile Packard Children's Hospital are separate.

The Consolidated Budget anticipates a 7 percent increase in revenues overall, principally due to a 12.4 percent growth in investment income partly offset by a low, 1.6 percent growth in sponsored research funding from all sources (not including the SLAC National Accelerator Laboratory, which is seeing increased funding for several major construction projects).

Tuition income is expected to grow 3.8 percent, due to a previously approved 3.5 percent general tuition increase and a slight increase in projected enrollments. Health care services income – principally payments from the hospitals to the School of Medicine for faculty physician services – is budgeted to increase 5.3 percent.

Expenses in the Consolidated Budget are projected to increase 6.2 percent, or 4.8 percent excluding the SLAC construction projects.

Following extensive efforts in recent years to ensure departments have competitive salaries within their respective markets, the budget aims to maintain that position for 2013-14. Compensation costs are expected to increase 5.8 percent, reflecting salary increases, rising benefits costs and an increase in headcount.

Stanford expects to spend $254.1 million on student financial aid for undergraduate and graduate students in 2013-14, from all funding sources. Stanford continues to employ a need-blind undergraduate admission policy, admitting qualified U.S. students without regard to their ability to pay and meeting each family's demonstrated financial need.

Counting that financial aid and also stipends, salaries and other assistance provided to graduate students, total direct support to students will be $489 million.

The budget also addresses Stanford's substantial needs in operating and maintaining facilities. Campus utility costs in 2013-14 are projected to increase by $11.1 million or 14.8 percent, driven in part by debt amortization expenses for the Stanford Energy System Innovations (SESI) project.

General Funds Budget

Within the Consolidated Budget, the $1.2 billion General Funds budget provides $63.7 million in incremental allocations for the 2013-14 year – $21.2 million for inflationary adjustments including salaries and benefits, $14.7 million for research support including the enhanced reserve, $9.1 million for facilities, $7.3 million for undergraduate financial aid, and $11.3 million in enhanced support for academic and administrative units. This latter figure is much smaller than the amount allocated last year, reflecting caution in the face of an uncertain financial outlook.

The increases for academic and administrative support include the computer science and creative writing allocations mentioned above; additional funding for library materials purchasing; operational funding for the new Chemical Biology Institute; additional staffing in Counseling and Psychological Services; an allocation for expanded student career services in the Graduate School of Education; increased funding for compliance and information security; increased funding for Public Safety to expand security patrols and provide security for high-profile events; support for the Faculty Development Initiative and Faculty Incentive Fund; and funding for leadership development programs and enhanced staff training services, among others.

Capital Budget

Etchemendy also presented a Capital Budget for the university, part of a rolling three-year Capital Plan that includes projects that are in progress or expected to commence during the three-year period.

The Capital Budget calls for $659 million in expenditures for construction projects in 2013-14. Among the facilities projects funded in the budget are continued work on the SESI project, completion of Comstock Graduate Housing, repurposing of the GSB South building as the replacement for Meyer Library, initial work on the McMurtry Art and Art History Building, completion of the Bioengineering/Chemical Engineering building, and initial work on a 180-unit faculty housing project on South California Avenue.